Thursday, May 6, 2010

Should you Insure with GEICO?

Should You Insure with GEICO?
You should at least check them out.

GEICO started out years ago as the "Government Employees Insurance Company" and was popular among the government drones in Washington DC. Back when I was working at the Patent Office, I had insurance with GEICO, and it was cheap. But back then, it was dangerous as well.

For example, a friend of mine had his stereo stolen out of his Suzuki Samurai (it was the 1980's, remember?) and he filed a claim with GEICO. They canceled his policy as a result. I had a similar experience after getting a couple of speeding tickets. And once my policy was canceled, I could not get insurance except through a high-cost "risk pool."

Lesson learned: Speeding ain't worth it. You literally can save thousands, if not tens of thousands of dollars, over the years, by obeying the speed limits and driving defensively.

Since those days, GEICO has changed hands.  Warren Buffet, through his Berkshire Hathaway company, has bought a controlling share and re-worked the company in a new direction.  No longer is it focused on Government Employees, but it is aimed at the general public as well.

The business model is novel and makes sense. Traditional insurance companies sell insurance through local "agents", each of whom runs their own office, hiring their own employees and running their own business as they see fit. The problem with this agency model is that it pads the cost of insurance considerably, as each agency has to eke out a profit from its clients and also contend with the staggering overhead of leasing office space, hiring employees, etc.

And in many cases, there is a tension between the local agents and the parent company.  It is similar to the tension between car dealers and car manufacturers.   Car manufacturers would love to cut out the middleman and sell cars to you directly and keep all those profits.  But they need dealers to service cars.  The dealers cause no end of headaches for the company, and the company causes no end of headaches for the dealer.  It is a love-hate relationship.

The same can be said of the insurance business.  Captive agents (who work with one company) often have a love-hate relationship with the home office and increasingly, they are finding it harder and harder to eke out a living from the business.  Many agents are branching out into financial planning and investments in an effort to milk more money from their clients.  And many agents are sticking it to their clients in an effort to keep their agencies afloat.

And some companies, such as State Farm, are allowing anyone with a pulse to become an agent.  In small towns such as Brunswick, Georgia, there are at least four State Farm agents listed - all selling the same products and services.  Does this make sense from an economic standpoint?   In our small upstate community there are at least ten (10) local State Farm agents to choose from.  It is easier to find a State Farm agent than a Starbucks!

For customers, this agency model can be a nightmare.  Caught between the agent and the company, the customer is often given the shaft.  Call the agent for customer service, and chances are, you'll have to deal with the lowest possibly paid hair-brain of an assistant, who, in response to a question about your policy renewal date, will do something stupid like cancel your policy.  And yes, that has happened to me on more than one occasion.

Buffet and the new GEICO decided to take a different tack. They eliminated the agency model in favor of a centralized system using computers, online systems, and good customer service call centers.   And for the most part, it is a system that works well.

Most people dread calling a 1-800 number as they know they will have to wade through a series of DTMF menus before they finally reach "Chuck" in Bangalore India, who will ask them "how are you today?"   And "Chuck", who can barely speak English, can only tell them the balance on their account and what the weather is like in Bangalore.   Anything more serious than that requires a 20-minute hold time to talk to a "supervisor" and chances are, you'll get disconnected before then.

GEICO is different.   In the two years I have been with them, I have had to call several times over various issues, some major, some minor.  In every case, they have answered the phone on the first ring.  No waiting on hold.   And the people you talk to are in America and speak English.  And in every case, they have the authority to make whatever changes are necessary to your account.  And in every case, they have the knowledge to advise you on every aspect of your policy.

Imagine that, a call center where they train people and empower them.   Who knew it could be done?

My policies are pretty much on auto-pilot now.  I can go online and check on them, and they automatically renew every 6 months.   The premium is about $850 a year for five cars (no collision, no uninsured motorist, no rental, towing, comp, free windshield wipers or whatever).  So I don't need to call their call center.

I also have an umbrella liability policy through them.  It is more costly than from other agencies, but this is more than offset by the savings in the auto policy.  Their boat, homeowners, and other products are not as attractive and are more difficult to deal with (run out of a separate department and I think merely a re-packaging of someone Else's policies).

But their basic car insurance product is packaged well and easy to use.

I have not had to file a claim under this policy, so I can't analyze how well that works. In fact, since I have only liability coverage, I never will file a claim myself, only someone else, if I hit them with my car. With any luck, I should never have to file a claim, anyway. Again, your goal, when buying insurance, should not be to file claims.

The purpose of insurance SHOULD be to provide you with a safety net, in case something awful happens. Too many people shop for insurance like it was a Chinese Take-Out menu, and view a car accident like some sort of spa vacation with "all inclusive" pricing - a free rental car and a trip to the chiropractor. If you stop looking at insurance (all kinds) as a "something for nothing" proposition, you'll be able to get a better deal on insurance.

People who look for the payout on insurance as the big goal, tend to over-insure and pay top dollar in premiums. If you expect a payout, then you have to pay-in, it is a simple as that.

So buying collision coverage with a $500 deductible, on a $5000 car is pricey. The premiums involved will, over a period of a few years, exceed the possible $4500 payout. If you think what is parked in your driveway is a "major asset" of your estate, then you need to start re-thinking your priorities.

The GEICO model seems to work well - delivering excellent service at low prices. GEICO recently has opened service centers in some areas, apparently to snag some of the business from people who still distrust the Internet and want to deal with someone face-to-face. I hope this doesn't cause them to abandon their successful online model, however.

And you may read complaints online from people who take the something-for-nothing approach to insurance. They wreck their car and then complain that GEICO won't buy them a new one, or they get a DUI and three speeding tickets and wreck their car and wonder why GEICO cancels them or refuses to write. Take online evaluations and endorsements with a grain of salt - they are often spiked and shilled by competitors these days.

And you may have read about how GEICO fired its Gecko voice actor for leaving insulting voice-mail messages on some teabagger answering machine. You can't blame them from walking away from a controversy. Here's a hint to wanna-be actors: If you land a gig like that, don't blow it by being found with a prostitute or doing something stupid. It would be like the Verizion "Can you hear me now?" guy being seen smoking a crack pipe. Career ended, period.

They will likely find another vaguely British-sounding guy to do the lizard voice, although I think the Gecko campaign was tapering off anyway.

UPDATE:  June 18, 2012.  By dumping junk coverages (towing, car rental, $10,000 medical, uninsured motorists, collision, comp) my insurance has been as low as $15 a month through GEICO.  You should understand the coverages you are buying, and what they mean, and then make an informed decision as to whether to keep them.  Whether to drop collision and comp, for example, is a personal decision.  For young people, it is often unaffordable (more than the cost of the car).  For older cars, it often will not pay out much.  Do the math and decide for yourself.